Question 1

In a period of rising prices what are the differences between LIFO and FIFO?

Accepted Answer

FIFO produces the lowest cost of goods s

Question 2

Which one of the following statements is false?

Accepted Answer

A)  FOB shipping point means the buyer has legal title to the goods while they are in transit. 
B)  FOB shipping point means the buyer has legal title to the goods when they are shipped. 
C)  FOB destination means the seller has legal title to the goods until they reach the buyer's place of business. 
D)  FOB shipping point means the buyer acquires legal title to the goods when they reach the buyer's place of business. 
A)  FOB shipping point means the buyer has legal title to the goods while they are in transit. 
B)  FOB shipping point means the buyer has legal title to the goods when they are shipped. 
C)  FOB destination means the seller has legal title to the goods until they reach the buyer's place of business. 
D)  FOB shipping point means the buyer acquires legal title to the goods when they reach the buyer's place of business.

Question 3

Which one of the following cost flow assumptions provides the lowest inventory value in periods of rising prices?

Accepted Answer

A)  FIFO periodic 
B)  LIFO periodic 
C)  FIFO perpetual 
D)  moving average 
A)  FIFO periodic 
B)  LIFO periodic 
C)  FIFO perpetual 
D)  moving average

Question 4

Which of the following is included in the work in process account?

Accepted Answer

A)  manufacturing overhead 
B)  direct labor 
C)  raw materials 
D)  all of these 
A)  manufacturing overhead 
B)  direct labor 
C)  raw materials 
D)  all of these

Question 5

Use the following letters to represent items:

P = Purchases (net)
C = Cost of goods sold
B = Beginning inventory
E = Ending inventory

Which equation is correct?

Accepted Answer

A)  B - C + P = E 
B)  B - E = C + P 
C)  P - E = B + C 
D)  B = C - E + P 
A)  B - C + P = E 
B)  B - E = C + P 
C)  P - E = B + C 
D)  B = C - E + P

Question 6

Exhibit 7-1 Edwards Co. purchased raw materials with a cost of $95,000 on March 2, 2014. Credit terms of 3/20, n/60 applied. If Edwards pays for the purchase on March 18, 2014, calculate the amount recorded for inventory on March 2, 2014, using the method given.
-Refer to Exhibit 7-1. Edwards uses a perpetual inventory system and the net price method.

Accepted Answer

A)  $42,000 
B)  $76,000 
C)  $92,150 
D)  $95,000 
A)  $42,000 
B)  $76,000 
C)  $92,150 
D)  $95,000

Question 7

Dollar-value LIFO uses

Accepted Answer

A)  current cost only 
B)  cost indexes only 
C)  current cost and cost indexes 
D)  numerous detailed records from either a physical count or perpetual records 
A)  current cost only 
B)  cost indexes only 
C)  current cost and cost indexes 
D)  numerous detailed records from either a physical count or perpetual records

Question 8

Which of the following is not a disadvantage of using the FIFO cost flow assumption?

Accepted Answer

A)  creates the highest outflow for income taxes during periods of rising prices 
B)  does not match current costs against current revenues 
C)  includes all the holding gains in income during periods of rising prices 
D)  provides a relevant ending inventory value 
A)  creates the highest outflow for income taxes during periods of rising prices 
B)  does not match current costs against current revenues 
C)  includes all the holding gains in income during periods of rising prices 
D)  provides a relevant ending inventory value

Question 9

Which of the following are characteristics of a perpetual inventory system?

Accepted Answer

A)  Management knows how much inventory is on hand at all times. 
B)  Purchases of inventory are recorded to the inventory account. 
C)  The computer tracks inventory upon a sale and the cost of goods and inventory are immediately updated. 
D)  All of these. 
A)  Management knows how much inventory is on hand at all times. 
B)  Purchases of inventory are recorded to the inventory account. 
C)  The computer tracks inventory upon a sale and the cost of goods and inventory are immediately updated. 
D)  All of these.

Question 10

IFRS does not allow the use of LIFO because it

Accepted Answer

A)  would have to be allowed for tax reporting in each country 
B)  would result in too many overstatements of income 
C)  is inconsistent with any presumed physical flow of inventory 
D)  would have to be the only method permitted 
A)  would have to be allowed for tax reporting in each country 
B)  would result in too many overstatements of income 
C)  is inconsistent with any presumed physical flow of inventory 
D)  would have to be the only method permitted

Question 11

The following data has been provided by Lee Company regarding its inventory purchases and sales throughout the year.   Required:
Compute the cost of goods sold and ending inventory using the perpetual inventory system for the LIFO cost flow assumption.

Accepted Answer

Ending inventory is

Question 12

Inventory costs include all costs directly or indirectly associated with bringing an item to its existing condition or location for sale.

Accepted Answer

A) True 
 B)False

Question 13

Concerning purchase discounts, which one of the following statements is true?

Accepted Answer

A)  Purchase discounts taken should be deducted from the acquisition cost of the inventory. 
B)  The net price method results in recording accounts payable at the maximum value of the liability that the company may be required to pay out. 
C)  Purchase discounts lost should be included in the cost of inventory. 
D)  An advantage of the gross price method is that it isolates purchase discounts lost and thus highlights inefficiencies. 
A)  Purchase discounts taken should be deducted from the acquisition cost of the inventory. 
B)  The net price method results in recording accounts payable at the maximum value of the liability that the company may be required to pay out. 
C)  Purchase discounts lost should be included in the cost of inventory. 
D)  An advantage of the gross price method is that it isolates purchase discounts lost and thus highlights inefficiencies.

Question 14

When a company uses a perpetual inventory system,

Accepted Answer

A)  there is no purchases account 
B)  the cost of goods sold account is used 
C)  two entries are required when inventory is sold 
D)  all of these 
A)  there is no purchases account 
B)  the cost of goods sold account is used 
C)  two entries are required when inventory is sold 
D)  all of these

Question 15

McClure Corp. purchased raw materials with a cost of $86,000. Credit terms of 3/10, n/60 apply. If McClure uses the net price method, the purchase should be recorded as

Accepted Answer

A)  $77,400 
B)  $86,000 
C)  $83,420 
D)  $88,580 
A)  $77,400 
B)  $86,000 
C)  $83,420 
D)  $88,580

Question 16

What is the LIFO conformity rule?

Accepted Answer

The LIFO conformity rule states that a c

Question 17

Which of the following are characteristics of a periodic inventory system?

Accepted Answer

A)  The system does not maintain a continuous record. 
B)  Management knows how much inventory is on hand at all times. 
C)  The computer tracks inventory upon a sale and the cost of goods and inventory are immediately updated. 
D)  Purchases of inventory are recorded to the inventory account. 
A)  The system does not maintain a continuous record. 
B)  Management knows how much inventory is on hand at all times. 
C)  The computer tracks inventory upon a sale and the cost of goods and inventory are immediately updated. 
D)  Purchases of inventory are recorded to the inventory account.

Question 18

Left Images Printing uses perpetual LIFO in valuing its inventory. The March 1 inventory was 36 units at $6 each. Purchases and sales during March were as follows:   
The cost of the ending inventory was

Accepted Answer

A)  $424 
B)  $312 
C)  $330 
D)  $286 
A)  $424 
B)  $312 
C)  $330 
D)  $286

Question 19

Which one of the following is an advantage of LIFO?

Accepted Answer

A)  In periods of rising prices, less income taxes are paid. 
B)  In periods of rising prices, more holding gains are reported in net income. 
C)  Record keeping and financial statement preparation are easier. 
D)  Conservative income statements and balance sheet disclosures result from falling prices. 
A)  In periods of rising prices, less income taxes are paid. 
B)  In periods of rising prices, more holding gains are reported in net income. 
C)  Record keeping and financial statement preparation are easier. 
D)  Conservative income statements and balance sheet disclosures result from falling prices.

Question 20

Which one of the following statements is false?

Accepted Answer

A)  A company using the periodic system does not maintain a continuous record of the physical quantities (or costs) of inventory on hand. 
B)  In the periodic system, the costs of acquisition of inventory are debited directly to an inventory account. 
C)  In the perpetual inventory system, recording in detailed subsidiary records can be in units only, not in dollar costs. 
D)  When the perpetual system is used, a physical count still needs to be made periodically. 
A)  A company using the periodic system does not maintain a continuous record of the physical quantities (or costs) of inventory on hand. 
B)  In the periodic system, the costs of acquisition of inventory are debited directly to an inventory account. 
C)  In the perpetual inventory system, recording in detailed subsidiary records can be in units only, not in dollar costs. 
D)  When the perpetual system is used, a physical count still needs to be made periodically.

Exam 7: Inventories: Cost Measurement and Flow Assumptions

In a period of rising prices what are the differences between LIFO and FIFO?

Which one of the following statements is false?

Which one of the following cost flow assumptions provides the lowest inventory value in periods of rising prices?

Which of the following is included in the work in process account?

Use the following letters to represent items: P = Purchases (net) C = Cost of goods sold B = Beginning inventory E = Ending inventory Which equation is correct?

Dollar-value LIFO uses

Which of the following is not a disadvantage of using the FIFO cost flow assumption?

Which of the following are characteristics of a perpetual inventory system?

IFRS does not allow the use of LIFO because it

The following data has been provided by Lee Company regarding its inventory purchases and sales throughout the year. Required: Compute the cost of goods sold and ending inventory using the perpetual inventory system for the LIFO cost flow assumption.

Inventory costs include all costs directly or indirectly associated with bringing an item to its existing condition or location for sale.

Concerning purchase discounts, which one of the following statements is true?

When a company uses a perpetual inventory system,

McClure Corp. purchased raw materials with a cost of $86,000. Credit terms of 3/10, n/60 apply. If McClure uses the net price method, the purchase should be recorded as

What is the LIFO conformity rule?

Which of the following are characteristics of a periodic inventory system?

Left Images Printing uses perpetual LIFO in valuing its inventory. The March 1 inventory was 36 units at $6 each. Purchases and sales during March were as follows: The cost of the ending inventory was

Which one of the following is an advantage of LIFO?

Which one of the following statements is false?

The Demand for and Supply of Financial Accounting Information

Financial Reporting: Its Conceptual Framework

Review of a Companys Accounting System

The Balance Sheet and the Statement of Shareholders Equity

The Income Statement and the Statement of Cash Flows

Cash and Receivables

Inventories: Special Valuation Issues

Current Liabilities and Contingencies

Property, Plant, and Equipment: Acquisition and Subsequent Investments

Depreciation, Depletion, Impairment, and Disposal

Intangibles

Investments and Long-Term Receivables

Financing Liabilities: Bonds and Notes Payable

Contributed Capital

Retained Earnings and Earnings Per Share

Advanced Issues in Revenue Recognition

Accounting for Income Taxes

Accounting for Postretirement Benefits

Accounting for Leases

The Statement of Cash Flows

Accounting for Changes and Errors

Time Value of Money Module

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